One charge hard to level at Intel: Raising prices

Experts say Intel has been instrumental in driving down PC prices, one of the key indicators of competition and one charge New York's Attorney General cannot easily level against Intel in its antitrust lawsuit.

New York Attorney General Andrew M. Cuomo on Wednesday filed a federal lawsuit against Intel accusing it of paying computer makers rebates to illegally maintain its monopoly power and preventing AMD from gaining business with PC makers.

One of the operative charges in the complaint centers on prices. "Intel launched an illegal campaign to deprive AMD of distribution channels and consumers of product choice and lower prices," the complaint alleges.

Not so fast, say some experts. "Prices are falling, buyers are not complaining about Intel's loyalty discounts, and the lower prices produce obvious and immediate benefit for consumers," said Joshua D. Wright, professor at George Mason University School of Law, and a scholar in residence at the Federal Trade Commission until 2008.

"Given the intuitive and easy to grasp nature of the consumer benefits of discounting contracts in the Intel case, I suspect that judges will be less likely to condemn these practices without real proof of actual consumer harm. I'm skeptical that AMD, (New York), or the (Federal Trade Commission) will be able to produce that here," Wright said.

And prices continue to fall. One of the most recent examples of steep downward PC price pressure is Netbooks, which have been a hit with many consumers because of their low cost, typically around $350. Intel, along with PC makers such as Asus, Acer, and Hewlett-Packard, created, in 2008, the Netbook market, whose rise forced AMD to counter with a technology platform for low-cost thin laptops that are, ironically, more expensive than Netbooks. "Ultrathins"--a market that Intel also participates in and is sometimes referred to as CULV, or consumer ultra low voltage laptops--typically start at $500 and range up to about $900.

The emergence of these two new low-cost laptop segments (Netbooks and ultrathins) is rooted in Intel's Atom processor, which is listed at prices as low as $29. Standard mobile processors, by comparison, have historically commanded prices above $200.

This is a pricing trend that clearly benefits consumers. Wright adds that U.S. law differs from the European Union--where Intel was fined $1.45 billion earlier this year--in the area of monopolies and harm to competition. "The main difference between U.S. and EU law is that when it comes to monopolization cases, the U.S. approach is inherently skeptical about condemning conduct which benefits consumers to avoid speculative future harms. The EU approach condemns most any non-standard discounting contract from large firms on the grounds that they are likely to harm competition," he said.

Others allegations in the complaint center on Intel coercing PC makers to buy Intel chips at the exclusion of AMD. Though this is an allegation Intel may have more trouble defending against, it's all part of price competition, according to some experts. "Once you strip away the charged but meaningless phrases like 'bullying,' it boils down to accusing Intel of offering steep price rebates in order to retain business--i.e., the essence of competition," according to a note released Thursday by Richard Brosnick, who practices in the area of antitrust at the law firm Butzel Long.

"One of the purposes of antitrust is to get companies to compete on price. To tell a company like Intel that you can't drop price in response to competition is taking antitrust laws to a place they're not intended to be," he said in an interview.

Wright says PC makers, rather than being bullied by Intel, use Intel and AMD pricing as bargaining chips. PC makers "are able to play Intel and AMD off each other to get higher rebates. These rebates are ultimately passed on to consumers in the form of lower prices. That's a critical part of the equation here," Wright said.

The complaint also makes repeated charges that prices would have even been lower "absent Intel's illegal acts" and "consumer gains greater."

"One can always make the argument, and NY and AMD will do so in this case, that prices would have fallen even faster without Intel's loyalty discounts," Wright said. "The problem with that type of argument is that it is completely non-falsifiable."

Other experts say Intel goes one step too far with its pricing tactics. "Intel has a long tradition of trying to prevent competitors from making serious inroads into their markets," said one expert close to the case that AMD has filed against Intel. This person said that the court will have to determine what pricing and rebate strategies are "just unethical" and which are "illegal."

Updated at 3:15 p.m. PST: adding discussion about mobile processor pricing.